Researcher: Bitcoin–S&P 500 correlation strengthens in falling markets

Bitcoin correlates fairly closely with American stocks. The statistical relationship is strongest during periods of turbulence in global financial markets and is almost absent during periods of price stability. These observations were shared by The Block researcher The Block Larry Chermak.

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A vivid example of the synchronized movement of the first cryptocurrency and the stock market is the “bloodbath” on 12–13 March during the panic related to the coronavirus pandemic.

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“Against the backdrop of uncertainty, Bitcoin price dynamics performed worse than the S&P 500 — the cryptocurrency fell by as much as 56%. Since hitting a low on 13 March, BTC has outperformed the S&P 500 and is currently trading about 10% above where it was before the crash,” noted Chermak.

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Such dynamics point to a higher beta factor for Bitcoin relative to the “barometer of the American economy”.

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Gold did not sell off as aggressively amid the coronavirus panic. Since 13 March, the noble metal rose by 18%, outperforming BTC and the S&P 500.

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Dynamics of the S&P 500, Bitcoin and gold since the start of March 2020. Source: The Block.

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Bitcoin and the S&P 500

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In the table below, the dynamics of the S&P 500 index and the first cryptocurrency are compared during periods of growth and decline in the stock market.

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Source: The Block.

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According to Chermak, the correlation coefficient of Bitcoin with the index exceeded 0.5 during periods of turbulence. During lulls in global financial markets or during a steady recovery of the S&P 500, the figure tended toward 0.

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Spikes in Bitcoin–S&P 500 correlation during periods of sharp declines in the index. Source: The Block.

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Against the backdrop of recent reports that Donald Trump had contracted COVID-19, Bitcoin slumped, tracking the “barometer of the American economy.”

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Dynamics of gold, Bitcoin and the S&P 500 amid news of Trump’s coronavirus infection. Source: The Block.

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Bitcoin and gold

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There is also a statistical link between gold and the first cryptocurrency. However, it is not as pronounced as in the case of the S&P 500.

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Bitcoin–gold correlation is noticeably lower than with the S&P 500. Source: Coin Metrics.

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“Gold, despite a small March sell-off, acts as a safe-haven asset,” emphasised Larry Chermak.

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30-day correlation of S&P 500 futures and gold. Source: The Block.

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“Market participants should fear external factors more than ever before. Macroeconomic uncertainty can quickly erode small upward movements,” the researcher concluded.

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The correlation between Bitcoin and the S&P 500 reached a peak in July this year.

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